Treasury 10-Year Yields Remain Under 2% on Economic Data

Treasury 10-year yields remained under 2 percent for a 15th day, the longest stretch in more than three months, after economic reports failed to provide evidence that the recovery was accelerating.

Yields fluctuated as a report showing a decline in initial unemployment claims was followed by one pointing to slowing growth in service industries, the largest part of the U.S. economy. German debt yields stayed near record lows as the European Central Bank held its benchmark interest rate at 1 percent. Payrolls increased by 160,000 last month and the unemployment rate remained at 8.2 percent, Bloomberg surveys showed before tomorrow’s reports.

“People are waiting for tomorrow’s employment report to confirm, or buck, the recent weakening trend,” said Larry Milstein, managing director in New York of government- and agency-debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “The market isn’t too optimistic. There are a lot of players on the sideline waiting for some of the uncertainty to shake itself out.”

Benchmark 10-year note yields were little changed at 1.93 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. It is the longest streak under 2 percent since Jan. 19. The yield fell two basis points, or 0.02 percentage point, yesterday. It dropped to 1.88 percent on April 27, the lowest since Feb. 3.

The Institute for Supply Management’s index of non- manufacturing industries, which account for almost 90 percent of the U.S. economy, decreased to 53.5 in April from 56 a month earlier. The Tempe, Arizona-based group’s measure was projected to decline to 55.3, according to a Bloomberg survey. Readings above 50 signal expansion.

‘Not a Trend’

Treasuries fell earlier after jobless claims declined by 27,000 to 365,000 in the week ended April 28, a one-month low, from a revised 392,000 the prior period, Labor Department figures showed today in Washington. The median forecast of 46 economists surveyed by Bloomberg News called for 379,000 applications.

“There’s still headwinds in Europe, there’s still countries falling back into recession, you have slower economic data in the States, and one stronger claims numbers is still not a trend,” said Sean Simko, who oversees $8 billion at SEI Investments Co. (SEIC) in Oaks, Pennsylvania. “It’s not going to change the Treasury market.”

Treasury 10-year yields dropped to 1.90 percent yesterday after ADP Employer Services said U.S. employment increased less than economists forecast in April. The yield on similar-maturity German bonds fell to a record low 1.60 percent.

Spanish Auction

“There’s probably not a great deal out there that’s going to shift people’s expectations for the pace of the recovery,” Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “The concerns about the pace of the recovery persist as we move into the second quarter.”

Spanish bonds gained after Spain’s Treasury met its target at a debt sale today and stayed higher after DBRS cut the nation’s credit rating one step to A (high) from AA (low) and said the “trend remains negative.”

The Spanish Treasury sold 2.52 billion euros ($3.31 billion) of bonds, exceeding its maximum target. Still, Spain had to pay 4.037 percent to sell debt for three years, up from 2.617 percent at a March 1 sale.

The Federal Reserve’s 21 primary dealers added $20.6 billion of Treasuries to their balance sheets for the week ended April 26, boosting their holdings 26 percent to $99.8 billion, according to Fed data released today. The holdings are the most since Feb. 12 when dealers held a record $106.3 billion of U.S. government debt.

‘No Conviction’

The Fed bought $1.833 billion of Treasuries due from February 2036 to February 2042 today as part of its program to replace $400 billion of short-term debt in its portfolio with longer-term Treasuries in an effort to reduce borrowing costs further and counter rising risks of a recession.

The Fed purchased $2.3 trillion of bonds from December 2008 to June 2011 in two rounds of so-called quantitative easing, known as QE1 and QE2, to support the economy. Policy makers have pledged to keep the target for overnight bank lending at almost zero until at least late 2014.

The Bloomberg Financial Conditions Index at minus 0.03 shows the U.S. is nearly evenly poised between growth and contraction. Positive numbers indicate growth while negative readings suggest shrinkage.

“There’s no conviction about the economy,” said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee. “The fact that we’ve got a ‘saw-tooth’ pattern going across the data makes it that much worse,” he said, referring to the trend of positive data followed by negative.

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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